Nordic Aqua Partners A/S (NOAP.OL) Q3 FY2025 Earnings Call Transcript & Summary

Hello. Good morning, everyone. Welcome to Nordic Aqua's presentation of Q3. Today, to present, we have with us Andreas Thorud from China and our CFO, Tom. If we go to the agenda for today, I will start with some highlights, and then Andreas will take us through market. I will come back with operations and project. CFO. Tom will take us through the financials, and I will end with a summary and give some outlooks. So if we start going to the highlights, we can say the highlight of the Q3 was that we announced our finance package for our company. So that was very positive to be able to come with this. And of course, also, as you can see in the front page picture and also this picture, we can see that we took the first of 4 units in Stage 2 also in use. So the finance package, which Tom will come back to is one of the highlights, and the harvest was of 630 tonnes of good quality fish, smaller than we normally have sold and it's mainly because we have taken out a number of fish needed for the growth going forward. Sales price also somewhat lower, mainly due to the small fish, but also we harvested most of our fish in the lowest paying month in August. Biomass production just under 1,000 tonnes, good biology otherwise. And we end the year with 2,800 tonnes in the quarter. The CapEx was a positive story. We were able to take CapEx down for Stage 2 from previously announced EUR 77 million down to EUR 65 million, 16% reduced. And then we also had this successful transfer of fish into the first of 4 units in Stage 2. So these were the highlights. And if we continue to market, then our Managing Director in China, will take us through, so please, Andreas.

Thank you for that, Ragnar. So for the harvest and sales situation in Q3, we continue to develop the Chinese market with our Nordic PureAtlantic, and we continue also to receive good feedback on all the fish we deliver. We had, as you also mentioned here in the beginning, 630 tonnes HOG harvested with the superior share of 98%. In addition, the harvest weight was 3.1 kilo, which was an equivalent to 3.8 kilo live weight. And as was mentioned, that we were impacted now by having not the optimal growth earlier in the year in Q2, and that means that we had a lot of fish in our system, and we have to take that out to optimize the farming situation. And then we have bigger sizes coming in the quarters to come and also towards our 7-kilo strategy, 7-kilo live-weight production strategy that we've had. So that will improve. In addition, the pricing we achieved was EUR 5.5 per kilo. That is also impacted by the smaller size at the quarter, in addition to most of our harvest was -- or a great deal of it was in August when the prices were lower, and we have seen obviously, historical low prices in the market. However, this was still 9% above the spot price out of Norway. But we look also to work hard to do what we can to improve our price achievement further, and I'm confident we have both the market and the team to make that happen. Looking into what we did during the quarter, we had several activities we engaged in and also some other awards and achievements that were achieved and that particularly, we had a very good exposure at large trade show in China. The Shanghai Fisheries trade show, we had a large booth. We had a very good attention by financial customers and also existing customers. We received an award at China Salmon Industry Development Summit which we had for our quality. It was a Quality Salmon Producer award, which we were very proud to get by local peers. In addition, we had a very nice achievement of getting our launch of our Raised Without Antibiotics certificate certified to us by NSF and that is the first in China for Atlantic salmon, that's also something that's highly valued by the local customers and market due to the high attention on food safety aspects. We also participated in 2 local events to promote our products to consumers, one here in our home region around Gaotang, with regards to fishing festival and also in Shanghai, we were part of a Norwegian market event there who was consumer-facing with products related to Norway, which we also had our salmon on promotion and got a lot of good feedback from that. If we go to how we want to achieve further growth in this market and establish ourselves. We are -- we have our 4 pillars in the local value proposition, namely our unique freshness we provide to the market compared to when Atlantic Salmon fish is imported. Also the food safety aspects we have with a very high superior rate of 98%. We have low mortality rate. So we know how to farm the fish, but also that we can certify certain aspects now such as raise without antibiotics, the certification we got from NSF already some customers have used that in the market. That is a strong signal, and it's also testament we can send to market that we take food safety very seriously, and we have a high-quality product. We also focus on sustainability, by being locally here, we can produce locally, we can ship locally, we are in China for China. And we think that is also good from a sustainability point of view, as well as the agility we have of connecting the customers and we are looking also to expand into more strategic partnerships down the value chain to promote our Nordic PureAtlantic brand and we will continue to develop both the foodservice sector with a larger sized fish and also continue more in the retail sector to gain further attention and also development towards customer in that segment. And for those of you who don't know, we are situated in a very nice geographical position, 300 kilometers south of Shanghai. So we are serving what you call the Yangtze River Delta. So we have 100 million consumers within a 5-hour reach. It's an affluent part of China with higher income areas. There's also a growing focus on health and we are also able now to get the product into distribution. In addition to that, we are also working on other areas of China where you have higher income areas, such as in Beijing area and also South in Guangdong. So we have a full reach, should I say, to China to provide our products to where we think it will be meaningful for a consumer to get it and also meaningful for us as a business case. And also the Gaotang location is good for us with water quality, also have access to energy stable prices and also the modern infrastructure China can offer. So the Chinese Atlantic salmon market has been a growth story now ever since basically the end of the lockdown 3 years ago in China, and it's been a record quarter by quarter. We are doing here a rolling forecast quarterly -- not forecast rather than the historical performance. And you can see that until Q3 this year, it's just been going up and up, and it's now on a run rate for over 170,000 tonnes. This year will be another record year. So far, there's close to 50% increase in imports of whole fresh Atlantic salmon to China, and the market is expected to double by 2030, reaching more than 200,000 tonnes. Maybe it will be before that, but China has been a fantastic growth story this year in terms of volume Atlantic salmon, and we see that is also going more into distribution, particularly in the retail channels, which is very exciting. If you look at the makeup of the Chinese market in the next slide here, then we will see that Norway is a dominant player. It's been a year where prices have been relatively low. Norway then becomes a very preferred origin in this market, and they have taken a lot of market share, which has belonged to other players such as Chile, Australia and so on. And this has really been a year with Norwegian salmon dominating the Chinese market. And we think that this year will perhaps be a little bit of a special year in that regard, and it will be interesting to see how things will be next year if there is a picture, which we expect with higher prices. Because if you look at the overall situation when it comes to pricing in China, we can see now in August, September this year, for the -- this is how we calculate prices of the European origin, basically Norway Faroe Island, Scotland compared to Chile and Australian is that we need to go back to early 2021 to see the same landed prices in China. So it's been historically very low prices that have come into China these recent months. And we also see that it was kind of inverted the curve with, let's call it, the European origin compared to the Chilean and Australia, but we are now back to a premium gap opening towards the Chilean and Australian products. So we look forward to monitoring this. And then we look also forward to see that, we think that along with the analysts and others that the pricing situation will improve in the coming period. That's at least our assumption we have. Thank you, Ragnar.

Thank you. Thank you, Andreas. And going further with the agenda, we go to operations. We have in Stage 1, our 4,000 tonnes annual capacity that we have and if we can see on the left-hand side of the graph, the production is just under 1,000 tonnes this quarter. And if we look at feeding levels, they have been very stable throughout Q3 and also continue into Q4. So the biomass buildup is at the end of the quarter was just 2,800 tonnes, and we have passed 3,000 tonnes now in -- by this stage. If we go to the project. As we have mentioned before, we started to take and use the first of the 4 units in Stage 2 that was in -- we transferred a few fish in the 10th of October. If we look at the build-out of Stage 2, it has been quite successful, we started to lay in eggs when the hatchery was finished, and that was in Q3 last year. And construction has gone according to schedule. And as I mentioned also to start with, we have a lower cost estimate now for the final build out. We took it down from EUR 77 million down to EUR 65 million. And it was -- I mean, the benefit was that we have had a very good relation with our suppliers, especially we can see an effect from the Aqua Group supply. We have standardized the units. So all 4 units in Stage 2 are identical compared with quite many different units when we build out Stage 1. And of course, also, we are very pleased with our project manager who has very good control of the development and also the cost. So far, we have spent EUR 40.1 million of the EUR 65 million by the end of the quarter. If you can see in the picture on the left-hand side in the bottom. On the right-hand side of the picture, you can see that there is a facility covered with solar panels, that is stage 1 and on the left-hand side, we can see stage 2, not yet covered with solar panels, but they will come also there. So if we just take a look at the build-out plan further, so now we have completed for a while ago Stage 1. We are well underway also to complete Stage 2. And then we will continue into stage 3 later. We have said earlier that we will announce the plans for this in the time to come. But we can say now that we are going to do some planning and specifications during the 2026 and then when we can prove that Stage 1 and 2 are operating as expected, then we can take the final investment decision on stage 3. If we look at the way that we have been building our facilities, we have been, as I mentioned, very pleased with the development. We have seen that the standardized modules that we are used now from Aqua Group. They have been easier and easier to build, we can say. And when we continue into stage 3, it is just copying the same units. So we expect to see the same effect on cost reductions as we have seen in the Stage 2 build-out. And of course, if we look at the project as a whole, that government is backing financially by building the infrastructure itself, is also a great support for building capital efficient RAS facilities. Just having a look at the build-out, we can see that we will have the first harvest of what we could call Stage 3 fish by Q3 next year. So that is when we should expect the volumes to increase month by month, and detailed engineering for Stage 3 is expected to be or we will do that during next year. And we expect to have a start of construction by the year end of '26, beginning of '27 and then we can have the first harvest approximately 2 years later than that. And then our CFO, Tom will take us through the financials.

Yes. Thank you, Ragnar. Well, as you can see on the table to the right, our revenue was close to EUR 3.5 million and operating EBIT minus EUR 4.8 billion and profit for the period after tax financials minus EUR 2.5 million. As has been commented by both Ragnar and Andreas, our revenues of 3.5% was negatively affected by having more than half of the harvest in August, which proved to be a weak month price-wise and also by the smaller size of the fish. The cost related to released volumes were high at EUR 9.45 per kilo due to slow growth earlier in the year. Our investments during the quarter was EUR 10.4 million, giving a negative cash flow of EUR 8.9 million all in all for the quarter. And on the balance sheet, we just had a total of EUR 160 million, biomass was EUR 19 million the cash 4.7 million and equity, EUR 67 million, close to 42%. Then, as has been mentioned, towards the end of the quarter, we are entering a transformation, capitalization and financing agreements in 2 parts. First, there was a long-term financing arrangement by syndicated banks led by Bank of China as well as the agent and lender. And secondly, a capital injection into the Chinese entity by 2 reputable state-owned entities. Together, this will accelerate our strategy execution towards 20,000 tonnes and offer synergies as well as increasing our competence access and pace. We will have refinance all short-term and long-term debt and have a new financing base in local currency, renminbi. And we will also consider IPO-ing Chinese entity in the future. Looking more closely at the extent on the debt part of this transaction. There will be one facility that with the syndicate of Chinese banks for RMB 385 million for the long-term finance of our facility in Gaotang. asset facility, if you like. And then there will be a working capital facility of up to RMB 200 million for the scale of harvesting. There is also a preliminary agreement for Stage 3, which will be available subject to some milestones, of course. We are now in the documentation phase for this transaction, and we expect to close in Q4. In the meantime, we have entered into a short-term bridge facility with Kontrari for EUR 10 million. Then on the equity side, as mentioned, 2 new investors into the Chinese entity for taking a 20% stake or RMB 300 million, EUR 36 million. We will get long-term local ownership, which will offer benefits for execution of the growth strategy to 20,000 tonnes and also operational and other synergies and it will broaden our future financing base and position the company for further expansion. As Ragnar said already, the potential IPO in China. The governance structure will be according to the national standards. And we have called for an AGM at the end of November to formalize these investments and changes to the articles. So in total, before I give the word back to Ragnar, these 2 transactions on the debt side and equity side together represent a strategic milestone for NOAP. It secures equity. It unlocks local debt financing with broad lender base at attractive terms. And it will enhance the company's ability to scale strategically, operationally and commercially by supporting the expansion to 20,000 tonnes. Thank you.

Thank you, Tom. So I will go to the summary and outlook now. And we just mentioned also that you have the chance to go in and write some questions that we can answer once we are finished with the last slide. Please bear in mind also that there is a time lag. So if you write them quite soon, then we will be able to answer them during the session. Going to the summary, we can see that like Tom ended, we have the financing package now in front of us so that we -- it can enable us to continue to build a facility up to 20,000 tonnes. We have -- are receiving very good feedback. It will be seen when we -- especially probably when we enter into harvesting larger fish again during next year. The biology has been quite strong. Most of the time, Q2 was maybe an exception, but other than that, it's been going very well with the production. The harvest was 630 tonnes during this quarter. If you look at Stage 2 CapEx very good development that we were able to reduce previously announced CapEx levels. And if we look into next year now or this year first, we have postponed some of the harvest. We have previously said 2,300 tonnes. Now we say that we will save some of the fish probably next year. So it's 2,000 tonnes now. And next year, we expect that to be 5,000 to 6,000 tonnes harvest from the facility and bear in mind that we will start harvesting from Stage 2 in -- from September and onwards. So with this, I will conclude and just thank you all for attending.

And we can see that some questions have already been raised. The first question is, if I read it out, can you comment on net biomass growth so far this quarter. So that means in fourth quarter. And of course, now we have -- October has passed and also the first part of November. And I can just say that the growth that we have seen has continued. We measure it on how much feed we deliver every day. If we are at or about 15 tonnes per day, then that should be more than 4,000 tonnes per year in head on gutted. And so far, we have been above 15 tonnes in feed deliveries per day this quarter. So if this continues, then it will be a very strong production quarter. And then there is a second question. And this is on different issues. The first part of the question is, should we still expect EUR 170 million in CapEx for Stage 3. So that's the first question. I will just read them all out. Second is, how do you see price achievement in 2026? What do you expect of premium relative to Norwegian spot price? So that was the second part of the question. And the third one is, what do you expect of harvest weights in Q4 2025 and Q1 2026? So I think I can answer some of the questions and Andreas can answer some of the questions also. The first part was, should we still expect EUR 170 million for CapEx for Stage 3. I can say that, as you also saw maybe in the presentation, we will do detailed engineering during 2026. And that is when we come up with a more secure price on Stage 3. But if we look at the savings that you have had in Stage 2, I can say also that this are expected to be lower than EUR 170 million whether it will be EUR 150 million or somewhat lower than that, then we will just come back to that one. I cannot say exactly at the moment what we expect the cost to be. And then, Andreas, I think you are the best to answer the next question. How do you see price achievement in 2026? What do you expect of premium relative to Norwegian spot prices?

Yes. I think, we know the Chinese market is a market that value larger fish. And we have said that we have a strategy now that we're working towards 7-kilo live weight fish and coming into 2026, we will provide larger fish to the market and hence, we think our price achievement will be even better. So for us, it's part of getting the right size that is mostly valued in the Chinese market, and that is to get bigger size. And we know the Chinese market has a preference for 6 plus. When it comes to the premium, I think we had in quarter 1 when we -- this year when we returned to the market, and we had average HOG sizes, if I'm not mistaken, of 5.6, 5.7 kilo in that quarter. It was kind of a half quarter for us in quarter 1 this year. But when we weighted our local selling price towards the weekly spot price out of Oslo towards that particular size segment, we were 20% above the spot price. That is just to give an indication. So our goal is to obviously get as best as possible. I think it's challenging to give pinpoint an exact premium, but we see that it's very much tied to sizes and we're working hard to get the sizes up as well as establishing strong customer relationships and also promoting. And I also mentioned we have now raised without antibiotics and other compelling features of our product to the local market.

Thank you, Andreas. And then we can come back to the last part of this question. What do you expect of harvest weights in Q4 this year and Q1 next year? And of course, both Andreas and I could answer. I'll just start, Andreas. And then this fourth quarter, we expect the weights to go somewhat up. We will go up towards 4-kilo in head on gutted, so just under -- somewhat under 5-kilo in live weight. And then we continue to grow increase the harvest weight into the next quarter in Q1. So then we expect to be maybe at 5.5 kilo or so in live weight. But let's come back to that later, but it will be somewhat in that area. And then we have a final question, which I believe, Tom, you will answer. It's what are the terms of the syndicated loan is the question.

Sorry, I had it on mute. We haven't disclosed the terms of the syndicate loan facilities. There are 2 project loan and working capital loan. It's a long-term loan, 10 years and what we said is that terms, both financial and nonfinancial terms are -- compares favorably to what is available in the European market. That is what is said so far. So I think I'll stick to that for the moment.

Okay. Thank you very much, Tom. When we look at the list of questions, we can see we have completed the list now. Maybe we can just wait a little bit if -- since there's a delay, if anything else shows up, but -- yes, we can just wait for a short while. Okay. It looks like no more questions. So I'd just like to one more time, thank you all for attending. Thank you.